Continental Wins Lead Bank Role For Owens Unit

Continental Bank beat out several rivals to lead a $225 million credit for an Owens-Illinois Inc. subsidiary that plans to go public soon through an initial stock offering.

The financing for Health Care and Retirement Corp. also elicited interest from the banking units of First Chicago Corp., Bankers Trust New York Corp., and Citicorp, according to sources familiar with the deal.

As the lead bank in the 1987 leveraged buyout of Owens-Illinois by Kohlberg Kravis Roberts & Co., Bankers Trust seemed to have been well positioned to win the agent role for the new HCR credit.

Up on the Competition

But Continental had a leg up on the competition because it had previously studied HCR's operations in depth, and was able to make a quick commitment when the new bank loans were sought.

Continental's familiarity with HCR stems from its work last year with Golder, Thoma & Cressey, a Chicago firm that planned to buy the Owens-Illinois unit. The deal later fell through.

No Decision Yet

It was not immediately clear whether any of the other three banks ever submitted competing bids to provide the new bank loans, or if Continental simply beat them to the punch.

Continental has already sounded out a handful of potential coagents, including Toronto Dominion Bank. Officials at the Canadian bank said they are considering the deal, but haven't made a decision yet.

Toronto Dominion is one of a small group of banks, led by Bank of Boston, that previously provided $70 million in off-balance-sheet financing to HCR.

Proceeds from the new Continental-led credit will be used in part to refinance that debt, as well as another $100 million that HCR borrowed under a credit line provided to its parent company.

The remainder of the new credit will be used for working capital.

Proceeds to Be Upstreamed

Proceeds from the stock offering, meanwhile, will be upstreamed to Owens-Illinois and applied to the parent company's bank debt.

A registration statement for the stock offering was filed with the Securities and Exchange Commission on Aug. 30.

HCR said it plans to offer about 15.5 million common shares at $14 to $16 through Merrill Lynch & Co. and Bear Stearns & Co.

After the offering, HCR's equity would amount to at least 50% of its total capitalization. It will not be classified as a so-called highly leveraged transaction.

Still, the rate on the new bank loan, priced 150 basis points above the London interbank offered rate, is higher than the rate charged on the Owens-Illinois bank loans, which are classified as HLTs.

"It always was a low-priced HLT," one banker said, referring to the rate on the Owens-Illinois loans, which is 125 basis points over Libor.

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